Suppose that you are a swap bank and you notice that interest rates on coupon bonds are as shown.Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR.The current spot exchange rate is $1.50 per €1.00.The size of the swap is €40 million versus $60 million. $$\begin{array} { | c | l | }
\hline \text { Rates } & 3 \text {-year } \
\hline \text { USD } & \$ 7 \% \
\hline \text { euro } & € 5 \% \
\hline
\end{array}$$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

Question

Suppose that you are a swap bank and you notice that interest rates on coupon bonds are as shown.Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR.The current spot exchange rate is $1.50 per €1.00.The size of the swap is €40 million versus $60 million. $$\begin{array} { | c | l | } 
\hline \text { Rates } & 3 \text {-year } \
\hline \text { USD } & \$ 7 \% \
\hline \text { euro } & € 5 \% \
\hline
\end{array}$$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

Quizplus · Accepted Answer

The euro interest rate is 5%, which is the rate you would be willing to pay in euros to receive USD LIBOR.

Suppose That You Are a Swap Bank and You Notice